An organization’s activities in furtherance of a religious belief must serve exclusively exempt purposes. See Reg. 1.501(c)(3)–1(c)(1). If the organization’s activities promote a substantial nonexempt purpose, exemption under IRC 501(c)(3) is precluded.

In one case, the Tax Court held that an organization dominated by one individual was not exempt as a religious organization because its purpose was to carry on the founder’s personal feud with a local newspaper. The court did not examine the validity or sincerity of the beliefs held. Rather, it found that the actual activities had little relation to the observance of those beliefs. Puritan Church of America, 10 T.C.M. 485 (1951), aff’d per curiam, 209 F.2d 306 (D.C. Cir. 1953), cert. den., 350 U.S. 810 (1955).

In First Libertarian Church v. Commissioner, 74 T.C. 396 (1980), the court held that an organization that was the outgrowth of a supper club and whose primary activities were holding meetings before supper, sponsoring the supper club, and publishing a newsletter did not qualify for exemption under IRC 501(c)(3). The organization failed to show that it successfully segregated the clearly social and political aspects of its supper club meetings and its publication from its stated purpose of furthering its religious doctrine of "ethical egoism."

Religious organizations that engage in substantial legislative activity are disqualified from tax exemption regardless of the motivation or purpose of that activity. Christian Echoes National Ministry, Inc. v. U.S., 470 F.2d 849 (10th Cir. 1972), cert. den., 414 U.S. 864 (1973).

In The Schoger Foundation v. Commissioner, 76 T.C. 380 (1981), an organization operating a religious retreat facility did not qualify for exemption under IRC 501(c)(3) because it failed to show that the retreat facility was operated exclusively for religious purposes. Although the organization’s mountain lodge offered guests religious, recreational, and social activities; however, none were regularly scheduled or required. The court concluded that the organization had not met its burden of proof to show that the lodge was operated primarily for an exempt religious purpose and that the recreational and social activities at the lodge were only incidental to a religious purpose.

The Tax Court held an organization formed to arrange for the construction of housing for sale to individuals associated with a religious denomination to be exempt under IRC 501(c)(3) in Janaluska Assembly Housing Inc. v. Commissioner, 86 T.C. 1114 (1986). The housing was to be constructed on the grounds of a retreat center owned by a conference of the United Methodist Church. The Service concluded that the housing would substantially further the nonexempt purpose of providing recreational and vacation opportunities to the purchasers. In a declaratory judgment action, the Tax Court concluded that because only active participants in the religious activities conducted at the center would be permitted to purchase the housing, the organization was organized and operated exclusively to further religious purposes.

An organization will not qualify for exemption under IRC 501(c)(3) if its net earnings inure to the benefit of private shareholders or individuals.

For a discussion of the attributes that are necessary for a religious organization to be classified as a church or a convention or association of churches, see Private Foundations Manual, IRM 7.26.2.

Publishing literature is an important method of disseminating religious views. However, publishing may also be a business operating in competition with commercial enterprises. The Service has held that publishing and distributing a monthly newspaper carrying church news of interdenominational interest accomplishes a charitable purpose by contributing to the advancement of religion. In that case subscriptions were obtained through individual churches and church associated groups and revenues did not cover the costs of operation. Rev. Rul. 68–306, 1968–1 C.B. 257.

In a Tax Court case, an organization sold a large volume of literature to the general public by mail. Some of the literature had little or no connection to the beliefs held by the organization. The surrounding circumstances tended to show that the individual who dominated the organization regarded the enterprise "simply as a money making operation." The court held that this was not a religious organization, but rather a trade or business. Foundation for Divine Meditation, Inc., 24 T.C.M. 411 (1965), affirmed sub. nom. M.E. Parker v. Commissioner, 365 F.2d 792 (8th Cir. 1966), cert. denied, 385 U.S. 1026 (1967).

In cases where religious literature is published by an organization to promote its beliefs, the activity may further exclusively religious purposes even though it produces an operating profit. Saint Germain Foundation, 26 T.C. 648 (1956); Unity School of Christianity, 4 B.T.A. 61 (1926). See also Pulpit Resource v. Commissioner, 70 T.C. 594 (1978), in which the court reversed the Service’s denial of exemption to an organization that sold a publication containing prepared sermons for use by ministers.

However, in Scripture Press Foundation v. United States, 285 F.2d 800 (1961), cert. den., 363 U.S. 985 (1962), a separately organized publishing corporation sold a large volume of religious literature, periodicals, and Sunday school supplies at a substantial profit was held not exempt. The court found that operating profits and accumulated earnings were disproportionately large and there was no clear purpose to further any particular religious beliefs. The general character of the operation was that of a commercial publishing house catering to religious customers. Thus, the court concluded it was a trade or business and not exempt. The existence of a modest program of expenditures for religious and educational purposes unconnected with the publishing did not have a decisive effect. See also Christian Manner International v. Commissioner, 71 T.C. 661 (1979).

One case places a great weight on the existence of an operating profit and a commercial pricing pattern. In Fides Publishers Association v. United States, 263 F. Supp. 924 (1967), a corporate publisher of religious books priced at commercial levels that showed moderate but consistent operating profits was held not to be exempt. The court said that although the "publishing activities further the exempt purpose of educating the lay apostolate," nevertheless, there was a substantial nonexempt purpose— "the publication and sale of religious literature at a profit."

In another case, an organization that published religious literature was held to no longer qualify as tax exempt in view of an abrupt increase in salaries of top personnel of the organization’s press, a large amount of accumulated profits, and the fact that the press was in direct competition with a number of commercial publishers. The facts showed that the organization’s primary purpose was to operate as a commercial business producing net profits. Incorporated Trustees of the Gospel Workers Society v. U.S., 520 F. Supp. 374 (D.D.C. 1981).

On the other hand, the Third Circuit Court of Appeals upheld the exempt status of another religious publishing organization, concluding that its accumulation of capital for physical expansion and its increased profit due to unexpected increases in popularity of one of the publisher’s authors did not show a substantial non-exempt purpose. Presbyterian and Reformed Publishing Co. v. Commissioner, 743 F.2d 148 (3rd Cir. 1984).

Broadcasting is an activity analogous to publishing. In Rev. Rul. 68–513, 1968–2 C.B. 212, a religious broadcasting station was held exempt under IRC 501(c)(3), where broadcast time was devoted to worship services and other programs having religious content. Although the station was operated on a commercial license, it did not sell commercial or advertising time.

Rev. Rul. 68–563 was amplified in Rev. Rul. 78–385, 1978–2 C.B. 174, which held a religious and educational television station exempt under IRC 501(c)(3) even though it devoted an insubstantial amount of broadcast time to commercially sponsored programs. However, the commercially sponsored programs are unrelated trade or business under IRC 513.

A nonprofit organization that supervises the preparation and inspection of food products prepared commercially to insure the compliance of individual members with the tenets and dictates of a particular religion was held to be accomplishing a charitable purpose by engaging in an activity that advances religion and thus the organization is exempt under IRC 501(c)(3) in Rev. Rul. 74–575, 1974–2 C.B. 161.

Similarly, a nonprofit organization formed to compile genealogical research data on its family members in order to perform religious ordinances in accordance with the precepts of the religious denomination was held to be advancing religion. Rev. Rul. 71–580, 1971–2 C.B. 235.

Rev. Rul. 75–282, 1975–2 C.B. 201 held that an organization, formed and controlled by an exempt conference of churches, that borrows funds from individuals and makes mortgage loans at less than the commercial rate of interest to affiliated churches to finance the construction of church buildings qualifies for exemption. By operating under the close supervision and control of the parent church conference, the organization was considered to be advancing religion by carrying out an integral part of the activities of the parent, i.e., aiding member churches in obtaining facilities for their religious purposes.

Rev. Rul. 77–377, 1977–2 C.B. 192, reached a contrary result concerning a nonprofit organization that arranges and conducts winter-time ocean cruises during which activities to further religious and educational purposes are provided in additional to extensive social and recreational activities. This organization is not operated exclusively for exempt purposes under IRC 501(c)(3).

Rev. Rul. 77–430, 1977–2 C.B. 194, held that an otherwise qualifying organization that conducts weekend religious retreats, open to individuals of diverse Christian denominations, at a rural lakeshore site at which the participants may enjoy the recreational facilities in their limited amount of free time and that charges no fees qualifies for exemption under IRC 501(c)(3) as an organization operated exclusively for religious purposes. This organization is clearly distinguishable from the one in Rev. Rul. 77–366 because the facts show the primary emphasis was on religious, not recreational, activities.

Rev. Rul. 79–359, 1979–2 C.B. 226, held that an organization whose purpose is to provide traditional burial services that directly support and maintain basic tenets and beliefs of a religion regarding burial of its members is operated exclusively for charitable purposes and is exempt under IRC 501(c)(3).

An organization that operated a medical aid plan for its church members was held to be furthering the church’s religious tenet that members should bear one another’s burdens and thus was entitled to exemption under IRC 501(c)(3). Bethel Conservative Mennonite Church v. Commissioner, 84–2 USTC 9195 (CA 7), rev’g 80 T.C. 352 (1983).

Compare Living Faith v. Commissioner, 950 F.2d 365 (7th Cir. 1991), aff’g T.C.M. 1990–484, in which an organization that operated vegetarian restaurants and health food stores in a manner consistent with the religious beliefs of the Seventh-Day Adventist religion did not qualify for recognition of exemption under IRC 501(c)(3). The court concluded its operations evidenced a substantial nonexempt commercial purpose.

The term "mail order church" refers to organizations set up pursuant to "church charters" purchased through the mail from organizations that claim that the charters and other "ministerial credentials" can be used to reduce or eliminate an individual’s federal income tax liability. Although a "mail order church" is not precluded from exemption, because it is possible for one to be organized operated exclusively for religious purposes, Service experience, as reflected in numerous court decisions, has shown that many are operated for the private benefit of those who control the organization. See IRM 4.70, for procedures regarding coordination with Examination function of IRC 170(c) deduction cases and assignment of income cases; and also for a general discussion of examination procedures for mail order churches; churches or conventions or associations of churches; and a discussion of IRC 7611, which sets forth certain restrictions on the examination of churches.

Service position regarding a common form of operation for many mail order churches is set forth in Rev. Rul. 81–94, 1981–1 C.B. 330. In Rev. Rul. 81–94 a professional nurse founded an organization under the name of ABC Church after purchasing a "certificate of ordination" from an organization selling such certificates and church charters. The nurse was the organization’s minister, director, and principal officer. The nurse executed a vow of poverty and transferred all of her assets, including a home and an automobile, and income to the organization. The organization also assumed all of her liabilities, including a home mortgage and credit card balances. The organization paid all her living expenses, and she continued to use the house and automobile for personal purposes. Rev. Rul. 81–94 concludes that, based on these facts, the organization does not qualify for exemption under IRC 501(c)(3) because it operates to serve the private interests of a designated individual rather than a public interest.

Numerous court cases have held that, in situations similar to that described in Rev. Rul. 81–94, an organization that serves the private interests of a designated individual rather than a public interest does not qualify for exemption under IRC 501(c)(3). See, for example, Basic Bible Church v. Commissioner, 74 T.C. 846 (1980); Church of the Transfiguring Spirit, Inc. v. Commissioner, 76 T.C. 1 (1981); People of God Community v. Commissioner, 75 T.C. 127 (1980); The Southern Church of Universal Brotherhood Assembled, Inc. v. Commissioner, 74 T.C. 1223 (1980); Bubbling Well Church of Universal Love v. Commissioner, 74 T.C. 531 (1980); and Unitary Mission Church of Long Island v. Commissioner, 74 T.C. 507 (1980); aff’d, 647 F. 2d 163 (2d Cir. 1981).

On a related issue, the Service has denied a charitable contribution deduction under IRC 170 for amounts contributed by an individual to an organization formed under the name of the ABC Church but operated for the individual’s private benefit. See Rev. Rul. 78–232, 1978–1 C.B. 69. Numerous court cases have also held that, in situations similar to the one described in Rev. Rul. 78–232, a charitable contribution deduction under section 170 was properly denied by the Service. See, for example, McGahen v. Commissioner, 76 T.C. No. 41 (March 26, 1981); Hall v. Commissioner, T.C.M. 1981–143; Baker v. Commissioner, T.C.M. 1980–367; Manson v. Commissioner, T.C.M. 1980–315, aff’d, 628 F. 2d. 1353 (5th Cir. 1980); Abney v. Commissioner, T.C.M. 1980–27; Push v. Commissioner, T.C.M. 1980–4; Heller v. Commissioner, T.C.M. 1978–149; and Clippinger v. Commissioner, T.C.M. 1978–107.

In many situations where the organization selling the church charters and ministerial credentials has been recognized as exempt under IRC 501(c)(3) (but has not received a group exemption), the organization purchasing the charter claims that it is covered by the selling organization’s exempt status. This argument was made in Basic Bible Church, discussed above, where the petitioner contended that as an auxiliary of the Basic Bible Church, it shared that organization’s tax exempt status (The organization had not received a group ruling). The court concluded, however, that the petitioner was legally separate and distinct from the parent church and, therefore, had to qualify for exemption under IRC 501(c)(3) on its own merits. See also United States v. Toy National Bank, 79–1 USTC ¶ 9344 (N.D.lowa 1979), and Brown v. Commissioner, T.C.M. 1980–553, which held that organizations that had obtained a charter from the Universal Life Church, Inc. (ULC) were not covered by that organization’s individual exemption. The courts in these cases concluded that because ULC had an individual rather than a group exemption, the chartered organizations had to qualify for exemption on their own merits.

Coffee house— A nonprofit organization formed by local churches to operate a supervised facility known as a "coffee house," in which persons of college age are brought together with church leaders, educators and leading businessmen of the community for discussions and counseling on religion, current events, social, and vocational problems was held to be advancing religion and thus exempt as a charitable organization. Rev. Rul. 68–72, 1968–1 C.B. 250.

Religious publishing— A nonprofit organization that publishes a newspaper primarily devoted to news, articles, and editorials relating to church and religious matters is exempt. Rev. Rul. 68–306, 1968–1 C.B. 257.

Religious broadcasting— A nonprofit religious broadcasting station that does not sell commercial or advertising time is exempt under IRC 501(c)(3) even though it operates on a commercial license. Rev. Rul. 68–563, 1968–2 C.B. 212.

Genealogical research— A nonprofit organization formed to compile genealogical research data on its family members in order to perform religious ordinances in accordance with the precepts of the religious denomination to which family members belong is advancing religion and thus exempt. Rev. Rul. 71–580, 1971–2 C.B. 235.

Supervision and inspection of commercially prepared food products— A nonprofit organization that supervises the preparation and inspection of food products prepared commercially in a particular locality to insure that they satisfy the dietary rules of a particular religion, thereby assisting the individual members of the religion to comply with its tenets and dictates, qualifies for exemption. Rev. Rul. 74–575, 1974–2 C.B. 161.

Mortgage loans to conference churches--An organization formed and controlled by an exempt conference of churches that borrows funds from individuals and makes mortgage loans at less than the commercial rate of interest to affiliated churches to finance the construction of church buildings qualifies for exemption. Rev. Rul. 75–282, 1975–2 C.B. 201.

Missionary housing— An organization established to provide temporary low-cost housing and related services for missionary families on furlough for recuperation or training in the U.S. from their assignments abroad is operated exclusively for charitable purposes. Rev. Rul. 75–434, 1975–2 C.B. 205.

Religious tours— A nonprofit organization that arranges and conducts winter cruises during which activities to further religious and educational purposes are provided in addition to extensive social and recreational activities is not operated exclusively for exempt purposes and does not qualify for exemption. Rev. Rul. 77–366, 1977–2 C.B. 192.

Religious retreats— An otherwise qualifying organization that conducts weekend religious retreats, open to individuals of diverse Christian denominations, at a rural lakeshore site at which the participants may enjoy the recreational facilities in their limited amount of free time and that charges no fees is operated exclusively for religious purposes and qualifies for exemption. Rev. Rul. 77–430, 1977–2 C.B. 194.

Charitable contribution; benefit to contributors— An individual who claims to be a minister, forms an organization under the name ABC Church, deposits salary checks for salary earned from outside employment in the organization’s bank account, and uses the funds of the account for personal living expenses is not entitled to a charitable deduction under IRC 170 for the amount of the salary checks. Rev. Rul. 78–232, 1978–1 C.B. 69.

Religious broadcasting— A nonprofit organization formed to advance education and religion that broadcasts religious and educational programs for all but an insubstantial amount of its broadcast time from a television station it owns and operates under a commercial license qualifies for exemption under IRC 501(c)(3), even though its remaining broadcast time is devoted to commercially sponsored programs. The commercially sponsored programs, however, are unrelated trade or business under IRC 513. Rev. Rul. 78–385, 1978–2 C.B.

Religious burial services— A nonprofit organization whose purpose is to provide traditional burial services that directly support and maintain basic tenets and beliefs of a religion regarding burial of its members is operated exclusively for charitable purposes and qualifies for exemption. Rev. Rul. 79–359, 1979–2 C.B. 226.

Church operated for benefit of founder— A nonprofit organization formed under the name ABC Church by a professional nurse (who is also the organization’s minister, director, and principal officer) that is used as a vehicle for handling the nurse’s personal financial transactions is not exempt under IRC 501(c)(3) because it serves the private interests of a designated individual rather than a public interest. Rev. Rul. 81–94, 1981–1 C.B. 330.

Schools provide the classic form of individual instruction. For IRC 501(c)(3) purposes, a school includes:

A school is defined in IRC 170(b)(1)(A)(ii). To qualify, a "school" must:

A private school that does not have a racially nondiscriminatory policy as to students does not qualify for exemption. This position was announced in Rev. Rul. 71–447, 1971–2 C.B. 230.

Rev. Proc. 75–50, 1975–2 C.B. 587, provides procedures that a school must follow to establish that it has a racially nondiscriminatory policy as to students. Under Rev. Proc. 75–50, a school must show affirmatively that it—

The requirement of racial and ethnic nondiscrimination extends to organizations, including churches or a convention or association of churches, that have secular school operations, whether separately incorporated or operated as part of the organization’s overall operations.

Rev. Rul. 77–272, 1977–2 C.B. 191, holds that an organization formed to conduct an apprentice training program for Native Americans, in conjunction with the Bureau of Indian Affairs, was charitable and not racially discriminatory.

A nonprofit day care center may be exempt under IRC 501(c)(3) as an educational organization.

Organizations that are operated for the convenience of students and faculty can qualify for exemption under IRC 501(c)(3) because they promote educational purposes. This category includes:

Other school-affiliated organizations and activities that may qualify as educational include:

College fraternities do not qualify for exemption under IRC 501(c)(3) because they are not operated for exclusively educational purposes. Although many have certain educational aspects, their activities serve substantial social purposes. Rev. Rul. 69–573, 1969–2 C.B. 125; J. Chrys Dougherty v. Phinney, 307 F.2d 357 (5th Cir. 1962); Alfred T. Davison v. Commissioner, 60 F.2d 50 (2nd Cir. 1932).

Similarly, Rev. Rul. 64–118, 1964–1 (Part 1) C.B. 182, holds that fraternity housing corporations are not exempt as educational organizations.

Student clubs and societies may qualify for exemption under IRC 501(c)(3) if they serve exclusively educational purposes, even if they offer incidental social or recreational activities.

In contrast, as set out in Rev. Rul. 73–439, 1973–2 C.B. 176, a student club or society is not educational if its activities, membership criteria, or other operational aspects reflect purposes that are not exclusively educational.

Organizations that provide services for educational organizations may be exempt in that they advance education. The following are exempt service organizations consisting of computer networks and organizations:

Compare:

Other exempt service organizations:

Cooperative service organization of operating educational organizations, which are exempt under IRC 501(f), are discussed in section IRM 7.25.3.7.6.1.

IRM 7.25.25 discusses IRC 502, ( "feeder organizations" ), which provides that an organization, operated for the primary purpose of carrying on a trade or business for profit, is not exempt under IRC 501 on the ground that all of its profits are payable to one or more organizations exempt under IRC 501.

Assistance that allows students to complete their educational programs may serve exclusively educational and charitable purposes, depending on the manner of selection and the class of eligible recipients. The following forms of student aid illustrate the standards of IRC 501(c)(3) that apply to educational assistance programs.

Scholarships and student loans (whether secured as in Rev. Rul. 63–220, 1963–2 C.B. 208 or unsecured as in Rev. Rul. 61–87, 1961–1 C.B. 191) that are granted on the basis of:

Free housing, books, or supplies, as in Rev. Rul. 64–274, 1964–2 C.B. 141, and Rev. Rul. 76–336, 1972–2 C.B. 143.

Various forms of student aid and recognition have been determined to further educational purposes, including—

Student aid does not further exclusively educational purposes if it is provided as compensation. An example of a "scholarship" program that served a substantial non exempt purpose is Miss Georgia Scholarship Fund, Inc. v. Commissioner, 72 T.C. 267 (1979), in which the court held that an organization whose activity was awarding scholarships to contestants in a beauty pageant did not qualify under IRC 501(c)(3) because the scholarships were awarded in consideration of contractual obligations.

An organization that provides educational assistance to pre-selected, specifically-named individuals, it does not qualify for exemption. Rev. Rul. 67–367, 1967–2 C.B. 188.

Scholarships may serve exclusively educational purposes even though eligibility is limited to members of a single fraternity, as in Rev. Rul. 56–403, 1956–2 C.B. 307.

Organizations that provide vocational training may be exempt as educational organizations, provided that any commercial operations are not larger than needed for the training program. In other words, commercial activity must be incidental to the educational activity. Cases that illustrate this principle include:

Organizations may be educational even if their educational activities are geared toward a certain business or profession. Exempt business-affiliated organizations include:

An educational program must be conducted for exclusively educational purposes, with only incidental nonexempt purposes. In Rev. Rul. 59–6, 1959–1 C.B. 121, an professional association was held not exempt under IRC 501(c)(3) where its educational program is only an incidental part of activities that had as a principal purpose the professional advancement of the members as a group.

An organization that operates a school to train individuals to fill responsible positions in political campaigns does not qualify for exemption under IRC 501(c)(3) where it fails to establish that it operates on a nonpartisan basis. In American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989), the court concluded that the organization, an outgrowth of similar training programs sponsored by the National Republican Congressional Committee, operated for the private benefit of Republican entities and candidates, who were not members of a charitable class. Although the organization had no formal requirement that candidates for admission be affiliated with any particular political party, the evidence suggested that most of its graduates went on to work in Republican campaigns, and the organization offered no evidence of an graduate who was affiliated with a domestic political party other than the Republican party.

The promotion of the arts and of culture is generally recognized as an educational activity. See Reg. 1.501(c)(3)–1(d)(3)(ii). The following are exempt educational activities dedicated to such pursuits:

Organizations that sponsor art exhibits may or may not be exempt, depending on the particular facts and circumstances:

The promotion of theatrical productions can be an educational activity. See, for example:

Plumstead Theatre Society, Inc. v. Commissioner , 74 T.C. 1324 (1980), aff’d 675 F.2d 244 (9th Cir. 1982), involved an organization formed to promote theatre. The issue was whether an IRC 501(c)(3) organization can serve as a general partner to non-exempt limited partners in a limited partnership. The court, in holding that the organization was exempt, found that the organization’s assets were shielded from the limited partners, the limited partners had no control over the organization, and the organization operated for charitable purposes.

Organizations that sponsor the performing arts must be nonprofit organizations in the sense that the earnings may not be distributed to individuals. For example:

The Tax Court determined that an organization that purchased, imported and sold handicrafts of disadvantaged artisans was exempt, in that it alleviated economic deficiencies in objectively determined communities of disadvantaged artisans in the United States and abroad. Aid to Artisans, Inc. v. Commissioner, 71 T.C. 202 (1978), acq. in result only 1981-2 C.B. 1.

Reg. 1.501(c)(3)–1(d)(3)(i) provide that the term educational includes the instruction of the public on subjects useful to